The head of the crop insurance industry's trade group is objecting to an EWG analysis that found that crop insurance companies could easily absorb cuts to their taxpayer-guaranteed rate of return. But a study commissioned by his own organization shows just how well crop insurance companies are doing.
Under the budget deal signed by President Obama this month, the rate of return – the ratio of company profits over policy premiums -- companies enjoy at the expense of taxpayers would fall from 14.5 percent to 8.9 percent. EWG's analysis showed that the government-guaranteed profits are flowing to some of the largest and most profitable companies in the world. A cut of $300 million a year, spread across 17 companies with net worth ranging from $4.4 billion to $281.1 billion, would hardly be devastating.
In an article in The Hagstrom Report, an agricultural news service, Tom Zacharias, president of National Crop Insurance Services, claims that net return is not the same as profit and says crop insurance companies are not making money. Instead, he says that between 2011 and 2014, after counting expenses these companies actually lost money on selling policies.
But in June 2015, a study by Grant Thornton LLP, commissioned by National Crop Insurance Services, calculated the rate of return to the crop insurance industry by dividing companies' pretax net income – before taxes, but counting expenses – by the amount of premiums retained by the insurer.
Between 2004 and 2013, the average rate of return was more than 14 percent. For the years Zacharias refers to, rates varied: In 2011, the return was 11.9 percent. In 2012, a year of extreme drought, companies paid out about 20 percent more than retained premiums. In 2013, they paid out 0.7 percent more than retained premiums.
However, the Department of Agriculture's Risk Management Agency figures for those years – cited by The Hagstrom Report in a February 2015 article - show much healthier rates of return: 18 percent in 2011, a loss of 15 percent in 2012 and a return of 7 percent in 2013.
Some crop insurance companies may have fared worse than the industry average in one or more of those years. But we can’t know that because Congress prohibits the USDA from reporting underwriting gains and subsidies paid to individual companies, even though taxpayers plow billions of dollars into the program every year. Zacharias says EWG is not interested in "honest debate and objectivity" – but if he really wants that, the crop insurance industry should join us in telling Congress to lift the veil of secrecy around this heavily subsidized program.
